Securities Law & Instruments

Headnote

Exemptionsfrom certain continuous disclosure requirements granted to a issuersponsored by a bank on specified conditions where because of theterms of the mortgage securities it issued, a securityholder'sreturn depends upon the financial condition of the sponsoringbank and not that of the issuer. The issuer offered mortgage securitiesto the public in order to provide the sponsoring bank with a costeffective means of raising capital for Canadian bank regulatorypurposes; The issuer holds a portfolio of assets consisting primarilyof mortgages and interests in mortgages; securityholders are entitledto fixed semi-annual non-cumulative distributions and if distributionsare not paid, the mortgage securities will be automatically exchangedinto preferred shares that have a dividend rate identical to theindicated yield of the mortgage securities. Specifically, exemptionsgranted from the requirements to:

(a)file interim financial statements and audited annual financialstatements and send such statements to securityholders;

(b)make an annual filing in lieu of filing an information circular;

(c)file an annual report and an information circular with the DecisionMaker in Quebec and deliver such report or information circularto securityholders; and

(d)prepare and file an annual information form ("AIF"), includinginterim and annual management's discussion and analysis ("MD&A")of the financial condition and results of operation to securityholders.

forso long as

(i)the bank remains a reporting issuer;

(ii)the bank sends its annual financial statements, interim financialstatements, annual management discussion and analysis and interimmanagement discussion and analysis to securityholdersand its annual report to securityholders resident in the Provinceof Quebec at the same time and in the same manner as if the securityholderswere holders of common shares of the bank;

(iii)all outstanding securities of the issuer are of the type presentlyissued;

(iv)the rights and obligations of holders of additional securitiesare the same in all material respects as the rights and obligationsof the holders of securities outstanding at the date of the reliefis granted; and

(v)the bank and its affiliates are the beneficial owner of all votingsecurities of the issuer

providedthat the relief expires 30 days after the occurrence of a materialchange in the affairs of the issuer.

 

ApplicableOntario Statutory Provisions

SecuritiesAct, R.S.O. 1990, c.S.5, as am., ss 77, 78,79, 80(b)(iii),81,

Applicable Ontario Rules Cited

OSCRule 51-501- AIF and MD&A

OSCRule 52-501- Financial Statements


INTHE MATTER OF

THESECURITIES LEGISLATION OF

ONTARIO,BRITISH COLUMBIA, ALBERTA, SASKATCHEWAN,

MANITOBA,QUEBEC, NEWFOUNDLAND AND LABRADOR AND NOVA SCOTIA

AND

INTHE MATTER OF

THEMUTUAL RELIANCE REVIEW SYSTEM

FOREXEMPTIVE RELIEF APPLICATIONS

INTHE MATTER OF

THEBANK OF NOVA SCOTIA

AND

INTHE MATTER OF

SCOTIAMORTGAGE INVESTMENT CORPORATION

MRRSDECISION DOCUMENT

WHEREASthe local securities regulatory authority or regulator (the "DecisionMaker", and, collectively, the "Decision Makers") in each of theProvinces of Ontario, British Columbia, Alberta, Saskatchewan,Manitoba, Quebec, Newfoundland and Labrador and Nova Scotia (collectively,the "Jurisdictions") has received an application (the "Application")from Scotia Mortgage Investment Corporation ("SMIC") and The Bankof Nova Scotia (the "Bank") for a decision, pursuant to the securitieslegislation of the Jurisdictions (collectively, the "Legislation"),that the requirements contained in the Legislation to:

(a)file interim financial statements and audited annual financialstatements (collectively, "Financial Statements") with the DecisionMakers and deliver such Financial Statements to the security holdersof SMIC;

(b)make an annual filing ("Annual Filing") with the Decision Makersin lieu of filing an information circular, where applicable;

(c)file an annual report ("Annual Report") and an information circularwith the Decision Maker in Quebec and deliver such report or informationcircular to the security holders of SMIC resident in Quebec; and

(d)prepare and file with the applicable Decision Makers an annualinformation form ("AIF") in Ontario, Saskatchewan and Quebec,annual management's discussion and analysis of the financial conditionand results of operation of SMIC ("Annual MD&A") in Ontario,Saskatchewan and Quebec, interim management's discussion and analysisof the financial condition and results of operation of SMIC ("InterimMD&A") in Ontario and Saskatchewan, and send such MD&Ato security holders of SMIC, where applicable;

shallnot apply to SMIC, subject to certain terms and conditions;

ANDWHEREAS pursuant to the Mutual Reliance Review Systemfor Exemptive Relief Applications (the "System"), the OntarioSecurities Commission is the principal regulator for this application;

ANDWHEREAS SMIC and the Bank have represented to the DecisionMakers that:

TheBank of Nova Scotia

1.The Bank is a Schedule 1 Canadian chartered bank incorporatedunder the Bank Act (Canada) (the "Bank Act"). The Bank is a reportingissuer or equivalent in the Jurisdictions and is not, to its knowledge,in default of any requirement of the Legislation.

2.The authorized share capital of the Bank consists of an unlimitednumber of common shares ("Bank Common Shares") and an unlimitednumber of preferred shares. As at July 31, 2001, 502,240,000 BankCommon Shares and 60,993,000 preferred shares were outstanding.

3.The Bank Common Shares are listed and posted for trading on TheToronto Stock Exchange (the "TSE"), and the London Stock Exchange.

ScotiaMortgage Investment Corporation

4.SMIC is a corporation governed by the Trust and Loan CompaniesAct (Canada) (the "Act"). SMIC is a reporting issuer or its equivalentin the Jurisdictions and is not, to its knowledge, in defaultof any requirement of the Legislation.

5.The outstanding securities of SMIC consist of: (i) 62,500 commonshares, all of which are held by the Bank; and (ii) 250,000 BankOriginated Over-Collateralized Mortgage Securities, each consistingof one non-cumulative Preferred Share Class A of SMIC (the "ScotiaBOOMS") that were distributed in a public offering pursuant toa prospectus dated October 23, 1997.

6.The Scotia BOOMS are listed and posted for trading on the TSE.

7.The business objective of SMIC is to acquire and hold Canada Mortgageand Housing insured residential first mortgages acquired primarilyfrom the Bank and/or its affiliates (the "Mortgage Assets"). TheScotia BOOMS provide the Bank with a cost-effective means of raisingcapital for Canadian bank regulatory purposes.

ScotiaBOOMS

8.Each Scotia BOOMS entitles the holder (a "Scotia BOOMS Holder")to receive a fixed cash distribution of $65.70 per annum (the"Indicated Yield") payable semi-annually by SMIC on the last dayof April and October of each year (an "Indicated Yield PaymentDate").

9.Upon the occurrence of certain adverse tax events (a "Tax Event")prior to October 31, 2007, the Scotia BOOMS will be exchangeable,at the option of the Bank without the consent of the holders thereof(the "Bank Tax Event Exchange Right"), for a formula determinednumber of Bank Common Shares.

10.On and after October 31, 2007, each Scotia BOOMS will be exchangeable,at the option of the Scotia BOOMS Holder, for a formula determinednumber of Bank Common Shares in accordance with the terms of aBank Share Exchange Agreement, (the "Bank Share Exchange Agreement")made between the Bank, SMIC and Montreal Trust Company of Canadaas trustee for the Scotia BOOMS Holders.

11.On and after October 31, 2007, each Scotia BOOMS will be exchangeable,at the option of the Bank, for a formula determined number ofBank Common Shares in accordance with the Bank Share ExchangeAgreement.

12.Each Scotia BOOMS will be automatically exchanged without theconsent of the holder, for non-cumulative Preferred Shares SeriesZ of the Bank ("Series Z Shares") if: (i) SMIC fails to declareand pay or set aside for payment when due the declared IndicatedYield on any Indicated Yield Payment Date; (ii) the Bank failsto declare and pay or set aside for payment when due any declareddividend on any issue of its non-cumulative preferred shares;(iii) the Superintendent of Financial Institutions (Canada) (the"Superintendent") takes control of the Bank pursuant to the BankAct or of SMIC pursuant to the Act or proceedings arguments forthe winding-up of the Bank or SMIC pursuant to the Winding-Upand Restructuring Act (Canada); (iv) the Superintendent has determinedthat the Bank has a Tier 1 risk-based capital ratio of less than5.0% or a total risk-based capital ratio of less than 8.0%; or(v) the Superintendent, by order, directs the Bank to act pursuantto subsection 485(3) of the Bank Act, or directs SMIC to act pursuantto subsection 473(3) of the Act, to increase its capital or toprovide additional liquidity and either the Bank or SMIC, as thecase may be, elects to cause the exchange as a consequence ofthe issuance of such order or either the Bank or SMIC, as thecase may be, does not comply with such order to the satisfactionof the Superintendent within the time specified therein.

13.The Series Z Shares will be convertible on and after October 31,2007, at the option of the holder, into Bank Common Shares.

14.The Scotia BOOMS may be redeemed by SMIC for cash in the followingcircumstances: (i) subject to the Bank Tax Event Exchange Right,upon the occurrence of a Tax Event on or after October 31, 2002and prior to October 31, 2007; or (ii) on and after October 31,2007, subject to the approval of the Superintendent.

15.The Scotia BOOMS are non-voting except as required by applicablelaw.

16.Except to the extent that the Indicated Yield is payable to ScotiaBOOMS Holders and other than in the event of liquidation of SMIC,Scotia BOOMS Holders have no claim or entitlement to the incomeof SMIC or the Mortgage Assets.

17.In certain circumstances (as described in paragraph 12 above),including at a time when the Bank's financial condition is deterioratingor proceedings for the winding-up of the Bank have been commenced,the Scotia BOOMS will be automatically exchanged for preferredshares of the Bank without the consent of Scotia BOOMS Holdersand, as a result, Scotia BOOMS Holders will have no claim or entitlementto the assets of SMIC, other than indirectly in their capacityas preferred shareholders of the Bank.

18.Scotia BOOMS Holders may not take any action to wind-up or dissolveSMIC except as provided by law.

19.The Bank and SMIC have entered into an Advisory Agreement pursuantto which the Bank provides advice and counsel with respect withcertain matters to SMIC and provides certain employees to serveas officers of SMIC to administer the day-to-day operations ofSMIC.

20.The Mortgage Assets of SMIC are serviced by the Bank and ScotiaMortgage Corporation ("SMC") pursuant to a Mortgage Sales andServicing Agreement entered into among SMIC, the Bank and SMC.

21.SMIC has not requested relief for the purposes of filing a shortform prospectus pursuant to National Instrument 44-101 -- ShortForm Prospectus Distributions ("NI 44-101") (including, withoutlimitation, any relief which would allow SMIC to use the Bank'sAIF as a current AIF of SMIC) and no such relief is provided bythis Decision Document from any of the requirements of NI 44-101.

22.Disclosure in respect of SMIC will be provided in a note to theannual financial statements of the Bank and those statements togetherwith all other materials sent to shareholders of the Bank willbe sent to all holders of Scotia BOOMS.

23.Notice will be provided to holders of Scotia BOOMS that as a resultof the relief granted herein to SMIC, such holders will receivethe continuous disclosure filings of the Bank described in paragraph22 above.

ANDWHEREAS pursuant to the System, this MRRS Decision Documentevidences the decision of each Decision Maker (collectively, the"Decision");

ANDWHEREAS each of the Decision Makers is satisfied thatthe test contained in the Legislation that provides the DecisionMaker with the jurisdiction to make the Decision has been met;

THEDECISION of the Decision Makers under the Legislationis that the

requirementcontained in the Legislation:

(a)to file Financial Statements with the Decision Makers and deliversuch statements to holders of Scotia BOOMS;

(b)to make an Annual Filing, where applicable, with the DecisionMakers in lieu of filing an information circular;

(c)to file an Annual Report and an information circular with theDecision Maker in Quebec and deliver such report or informationcircular to holders of Trust Securities resident in Quebec;

shallnot apply to SMIC for so long as:

(i)the Bank remains a reporting issuer under the Legislation;

(ii)the Bank sends its annual financial statements, interim financialstatements, annual and interim management discussion and analysisto holders of Scotia BOOMS and its Annual Report to holders ofScotia BOOMS resident in the Province of Quebec at the same timeand in the same manner as if the holders of Scotia BOOMS wereholders of Bank Common Shares;

(iii)all outstanding securities of SMIC are either Scotia BOOMS orcommon shares;

(iv)the rights and obligations of holders of additional series ofScotia BOOMS are the same in all material respects as the rightsand obligations of the holders of Scotia BOOMS Holders at thedate hereof; and

(v)the Bank or its affiliates are the beneficial owners of all outstandingcommon shares of SMIC;

andprovided that if a material change occurs in the affairs of SMIC,this Decision shall expire 30 days after the date of such change.

March13, 2002.

"PaulM. Moore, Q. C."       "Mary Theresa McLeod"

AND THE FURTHER DECISION of the Decision Makers inOntario, Quebec and Saskatchewan is that the AIF and MD&ARequirements to file and send and deliver to the registeredholders of Scotia BOOMS, as the case may be, the AIF, the AnnualMD&A and the Interim MD&A, shall not apply to SMIC.

March13, 2002.

"JohnE. Hughes"